Hedging vs. Trading – What Really Makes the Low?

GCNYNF-M Hedging

The lack of understanding with respect to market development is astonishing. The gold promoters desperately continue to argue that demand is somehow rising for physical coins, so somehow the prices are not real. At the bottom of markets, fresh buying NEVER causes the low — it is short-covering — END OF STORY.

Gold 1985 Low

As we move into lower prices, mining companies are FORCED to sell gold forward (paper gold) to try to make ends meet. Their short positions will increase, going into the lows, and many will go bankrupt without real hedging models. They will lose a fortune and contribute to the short-cover rally that even took place back in the 1985 low. There was one gold promoter back then who was short at the low and lost everything in a matter of days. The founder of  International Gold Bullion Exchange was sentenced to 10 years in prison for being short with no sense of how to hedge. That is why we developed both speculative and hedging models with entirely different goals.

As commodities are getting killed, the smart companies are starting to wake up. I am off to Mumbai for an urgent meeting next week. Many are starting to realize you cannot trade on headlines or advice from banks who profit from the trade in a conflict of interest. Unbiased independence is the only way to survive.